How Robinhood Democratized Trading by Stealing from the Poor and Giving to the Rich

By J.R. Robinson, Financial Planner (June 3, 2026)

The legend of Robin Hood recounts that he and his merry band preyed upon wealthy travelers and redistributed their booty to the downtrodden poor. The deliberately eponymous Robinhood brokerage firm was launched with the clever PR promise to "democratize trading" by making buying and selling stocks, ETFs, and cryptocurrency accessible to regular consumers through their mobile devices. 

The result? Millions of consumers have been encouraged to trade more, speculate more, and gamble more and, in the process, make Robinhood's founders billionaires. Far from benefiting American consumers, this article will show that Robinhood, the brokerage firm, has achieved immense financial success for its founders by essentially shifting wealth from young, inexperienced investors to the brokerage firm and its well-heeled, sophisticated market-making partners.

Dispelling the Myth that Robinhood Invented Low-Cost Investing

Robinhood's initial marketing success was built on a compelling narrative: traditional brokerage firms were gouging investors with commissions, and Robinhood would democratize investing by making trading free. That concept captured lightning in a bottle. However, the truth is a bit more nuanced.

Long before Robinhood launched in 2013, discount brokerage pioneers such as Charles Schwab, Vanguard, and Fidelity spent decades driving trading costs lower for individual investors, all the while stealing market share from the staid, high-commission, "full-service" wirehouse brokerage firms. By the time Robinhood entered the scene, commissions at the DIY investor incumbents (Schwab, Fidelity, Vanguard, and TD Ameritrade) were essentially free for most equity trades. Robinhood may have accelerated the industry's final nudge to zero-commission trading, but the suggestion that it invented low-cost investing is patently absurd.

What Robinhood did invent was a slick mobile experience designed to make trading easy, engaging, and frequent. Simply stated, Robinhood's major contribution to the DIY investor marketplace was not so much the democratization of trading but the gamification of trading.

How the Brokerage Industry Sausage Is Made

If, as Robinhood proudly trumpets, trading is free, how does the firm make money?

A peek behind the curtain at the reported revenue and earnings of publicly traded competitor Charles Schwab finds that the primary source of its revenue is net interest revenue, that is, the interest it earns on client money held in cash sweep accounts and on margin and mortgage loans. The second source is generated by the operating expenses on its proprietary mutual funds, most notably the firm's own money market mutual funds. The third source of revenue at Schwab is Payment for Order Flow (PFOF). PFOF is the small fee that Schwab earns on each share directed to certain market makers. The market makers, in turn, make money from the difference between the bid (seller's price) and ask (buyer's price) for each security in which they make a market. A fraction of that spread is shared with Schwab as compensation for directing the trade to them. Per trade it amounts to mere pennies, but spread across millions of trades each day, it is meaningful the firm’s bottom line. A distant fourth on the list of Schwab's sources of revenue are ancillary streams such as licensing and subscription fees charged to traders and advisors who use proprietary trading platforms such as Thinkorswim and iRebal, and other service-processing fees such as ACAT and wire transfers.

Part of Robinhood's initial big pitch was that it was above all these unsavory sources of revenue at its competitors… except Payment for Order Flow and margin interest. The suggestion that Robinhood was "eliminating" these fees was a bit of an embellishment, since it did not have the scale or infrastructure to offer those services. In fact, operating with only two sources of revenue meant that Robinhood had to operate with a small team of employees managing the app with no direct customer support. With 100% of its revenue from PFOF and margin interest, Robinhood was, and is, fully incentivized to encourage account holders not only to trade their brains out, but to borrow money to do it.

Enter the Gamification of Investing Era

As noted above, Robinhood's true innovation was not commission-free trading. It was the gamification of trading. The company transformed investing into an activity that feels remarkably similar to social media, online gaming, and sports betting. With a few taps on a smartphone, users can buy options, speculate on short-term market movements, and chase the latest investing trend. For a generation raised on smartphones, the experience is intuitive and, unfortunately, addictive.

The question that begs to be asked is, "For all of Robinhood's promises to level the playing field for average investors, are investors better off for Robinhood's contribution to the marketplace?" The academic research to date is overwhelmingly to the contrary.

Are Consumers Profiting from Frequent Trading?

The contribution of the gamification of trading can best be summarized in the following headline from today’s MarketWatch: "Only 5% of day traders make money, but the SEC is now making it easier for people to try it anyway" (MarketWatch, June 3, 2026). As the article goes on to explain, the 5% are generally not wildly successful or even making enough money to replace what they would make in a "real job." They are generally still underperforming the overall stock market – they’re just not losing money.

Although the headline is current, the empirical data have been showing this trend for the last three decades since online trading emerged in the 1990s. Specifically, researchers have consistently shown that investor returns are inversely correlated with trading frequency. Consumers who trade frequently tend to earn lower returns than investors who trade infrequently. Day traders, as a group, perform particularly poorly. Conversely, there is a veritable mountain of published academic research demonstrating the wealth-accumulating benefits of buying and holding ultra-low-cost, passively managed index funds.

These results should not be terribly surprising. The average Robinhood user is competing against professional traders, hedge funds, quantitative firms, and institutions with superior technology, data, research, and experience. That is like entering a pickup basketball game against NBA players and expecting to win consistently.

Yet social media and trading platforms such as Robinhood continue to market the dream that anyone can strike it rich through skillful trading.

So, Who Actually Benefits from Robinhood’s Existence?

Robinhood's founders became billionaires by creating a platform that encourages engagement and trading activity. From a business perspective, it is one of the great entrepreneurial success stories of the modern era. From an investor-protection perspective, however, the story is less sanguine.

A generation of young Americans has been taught that investing is exciting, fast-paced, and potentially life-changing. My fear, as a grizzled old financial planner and long-term investor, is that the generation who learned investing through Robinhood will walk away both poorer for the experience and jaded by the idea that the stock market is rigged against them.

As I wrote in a February 2026 post titled, "Is Stock Market is Rigged? Yes, In YOUR Favor!," the market-cap-weighted structure of the S&P 500 Index has served investors well through the past century. Even as the leading companies in the index have come and gone over time, that structure, which tends to favor the companies that are profiting the most at any point in time, has helped millions of buy-and-hold American investors accumulate sufficient wealth to retire comfortably.

Those young Robinhood investors will not lose their money because the market was rigged against them. They will lose money because Robinhood gave them a rigged game plan. It is perfectly analogous to how casinos create an environment that makes it easy for customers to lose money. In my opinion, what Robinhood is doing to its millions of Millennial and Gen Z account holders is reprehensible.

Make no mistake, Robinhood is stealing from the poor and making its founders and shareholders very, very much richer.

John H. Robinson is the owner and founder of Honolulu-based Financial Planning Hawaii and Fee-Only Planning Hawaii.